Fisher College of Business
The Ohio State University
Business Finance 4221
Investment Management
Fall 2015
——————————————————————————————————————————Professor:
Fousseni Chabi-Yo
Classroom:
Schoenbaum 200
Class Time:
Tuesday’s and Thursday’s 12:45pm–2:05pm
Office Hours:
Wednesday 1:00pm – 2:30pm or by appointment
Office:
840 Fisher Hall, E-mail: chabi-yo 1@fisher.osu.edu
Telephone:
614-292-8477 Fax: 614-292-2418
Course homepage: http://carmen.osu.edu/
Lecture slides, extra notes, assignments, datasets, links, and announcements (including changes to
office hours) will be posted here, so it is important that you regularly check the course homepage.
The best way to contact me is via e-mail. It is very important that you either e-mail me, come to
office hours, or talk to me after class if you are having difficulty with topics that we have discussed
in class or the problem sets. If you cannot make the regularly scheduled office hours, please e-mail
me to set-up an appointment and we will work out a mutually agreeable time.
——————————————————————————————————————————-
1
Goals & Prerequisites
The goal of this course is to teach the basics of financial decision making – both the theory and
applications – from the perspective of an investor.
We will focus on bond and equity valuation, risk and return, portfolio theory, mean variance
analysis, diversification, the efficient market hypothesis, the Capital Asset Pricing Model (CAPM),
testing the CAPM, understanding CAPM anomalies and multifactor models. We will discuss
extensively how to evaluate the performance of portfolio managers. Discussions include various
performance measures (Sharpe ratio, M2 , Treynor Ratio, Information Ratio, Jensen’s measure,
etc), performance attribution, the style analysis introduced by Nobel Laureate William Sharpe,
and market timing. Market timing involves shifting funds between a market-index portfolio and a
safe asset. To end, we will briefly introduce hedge funds and discuss performance measurement for
hedge funds.
This course is a quantitative course and we will focus on the tools, applications, and concepts
that go into investments. Proofs of equations will generally be relegated to supplementary documents posted on the course homepage for interested students. We will, however, go into the uses
of many of these formulas.
The main prerequisite for the course is Business Finance 620, but it would also be extremely helpful
if you are familiar with basic statistics (calculating means, variances, t-stats, linear regressions, etc).
Prior training in other mathematical concepts will also be helpful. I will assume that you have
some basic familiarity with:
• Statistics at the level of an introductory statistics course
• Excel
1
• Optimization (the concept, not necessarily how to calculate it by hand)
• Present Value
• The CAPM
If you are unfamiliar with these concepts, it will simply mean a little bit more work for you before
class. I will provide notes on the course homepage for some of these concepts.
The course will focus largely on classroom lectures and discussions, problem assignments, and a
number of empirical exercises. I encourage any constructive feedback throughout the half semester
on how the course may be improved.
2
Course Materials
•
•
•
•
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Required Textbook: Essentials of Investments, 9th edition, Bodie, Kane, and Marcus
Lecture Slides: to be posted on the course homepage
Empirical Homework Assignments: to be posted on the course homepage
Articles posted on the course homepage
Supplementary Materials
The following materials are entirely optional. You might consider some of these materials if you
are interested in Investments beyond the scope of the course.
• Financial press: Wall Street Journal, Financial Times, Economist
• Quantitative Investment Analysis, 2nd edition, DeFusco, McLeavey, Pinto, Runkle, and Anson
(A Probability & Statistics-based treatment of Finance)
• Financial Modeling, 3rd Edition, Benninga (Excel Modeling for Finance)
• Institutional Investment Management, Fabozzi (A somewhat more practitioner-based treatment)
4
Course Evaluation
4.1
Assignments
• End of chapter problems: These are meant to test your understanding of the concepts and
will help you prepare for exams. These do not need to be handed in and will not count
directly towards your grade.
• Empirical assignments: These are to be handed in and can be done in groups of up to four
students. These are intended to allow you the chance to have hands-on experience with data
and also to apply the concepts learned in class.
1.
2.
3.
4.
5.
Bond and Equity Valuation
Equity Returns
Portfolio Choice
CAPM
Behavioral Finance
Comments:
– Depending on how we progress through the topics in the course, the assignments may
be adjusted.
2
– It is very important that all members of a team contribute to all parts of assignments.
• Survey Questions: Near the Final Exam, I will distribute a set of questions to answer. These
should be handed in individually and credit will be received for completion.
4.2
Exams
There will be two midterms and a final in this course. The midterms and final exams will be closed
book, but a formula sheet will be provided.
Absences from the midterms and final exams will only be excused for the most serious of (documented) reasons. Please see the section on Policies for more details.
The date of the final exam is in the section labeled Schedule & Outline. The final exam is scheduled
by the Registrar during the normal finals week.
4.3
Class Participation
Class participation will be used in calculating you average.
4.4
Calculating Your Average
Empirical Assignments
Class Participation
Midterm Exam 1
Midterm Exam 2
Final Exam
20%
10%
20%
20%
30%
• Late assignments will not be accepted, but your lowest assignment score will be dropped.
• The final exam is cumulative.
5
Policies
Fairness. I will make every effort to treat students with dignity and fairness and to be sensitive
to the diversity that exists within the student body. Students with disabilities who request help
will be given reasonable accommodation with the assistance of the University Office of Disability
Services (292-3307, http://www.ods.ohio-state.edu/). Please feel free to speak to me in private
about any related issues.
Academic Misconduct. Students are expected to abide by the Fisher College of Business Honor
Code. Among other things, please do not submit plagiarized work or give or receive information
during exams and please provide proper acknowledgment in work when applicable.
Classroom Conduct. Please silence all cell phones and turn off electronic devices like iPods. Laptops
will be permitted in class for note-taking purposes, but please do not distract your classmates by
using your laptop to surf the internet or conduct other business during lecture. I also ask that
students remain professional and respectful during class discussions.
Questions Outside of Class. For any questions that have not been sufficiently answered in class,
please e-mail me or come to office hours. If you cannot make the regularly scheduled office hours,
please e-mail me and we will try to schedule a mutually agreeable time.
3
Absences from Exams. Absences from exams will only be excused with written documentation from
an appropriately accredited professional (i.e. a medical doctor).
Exam Regrading. If you feel that there has been a mistake in grading your exam, you can submit
your exam to be regraded. All regrade requests should be submitted within a week of when the exam
was returned to the class. You should submit your exam along with a brief written explanation of
why you believe the exam was graded incorrectly. The whole exam will be regraded and there is a
possibility that your overall score will actually decrease as a result of a regrade.
6
Acknowledgments
This course draws on materials used by Karl Diether, Reto Gallati, Andrew Karolyi, Jun Pan, Dimitris Papanikolaou, and Lu Zhang in investments classes at both Ohio State and other universities.
7
Schedule & Outline
The following schedule is tentative and subject to change based on how the class progresses. Please
note that assignment due dates are subject to change. Approximate dates are only
included here for planning purposes. Please see the course homepage for updates.
4
Date
Topic
Reading
08/25
Course Introduction & Overview of
Investments
Financial Markets
Financial Markets (con’t)
Equity valuation
Introduction to Bond
Bonds, Convexity and Immunization
BKM Ch. 1 & Ch. 2
Bonds, Convexity and Immunization
(con’t)
Midterm Review
BKM Ch. 11
08/27
09/01
09/03
09/08
09/10
09/15
09/17
09/22
09/24
09/29
10/01
BKM
BKM
BKM
BKM
BKM
Ch.
Ch.
Ch.
Ch.
Ch.
Assignment
Due Dates
3 & Ch. 4
3 & Ch. 4
13
10 & Ch. 11
11
Assignment
#2 Due
10/13
10/15
Midterm
Rates of Return
Risk & Return
Portfolio Choice & Mean-Variance
Analysis
Portfolio Choice & Mean-Variance
Analysis(cont’d)
Portfolio Choice & Mean-Variance
Analysis(cont’d)
The CAPM: Theory
The CAPM: Empirical Tests
10/20
10/22
10/27
10/29
11/03
11/05
CAPM Anomalies
Multifactor Models
Efficient Market Hypothesis
Midterm Review
Midterm
Portfolio Performance Measures
BKM Ch. 7
BKM Ch. 7
BKM Ch. 8
11/10
BKM Ch .18
11/26
12/01
Portfolio
Performance
(con’t)
Performance Attribution
Analysis
Market Timing
Behavioral Finance and
Analysis
Behavioral Finance and
Analysis (con’t)
Thanksgiving-no classes
Introduction to Options
12/03
12/08
Final Exam Review
Final Exam Review (con’t)
TBD
Final Exam TBD
10/06
10/08
11/12
11/17
11/19
11/24
BKM Ch. 5
BKM Ch. 5
BKM Ch. 6
and Style
Survey Due
BKM Ch. 6
BKM Ch. 6
BKM Ch. 7
BKM Ch. 7
BKM Ch. 18
Measures
Assignment
#1 Due
Technical
BKM Ch. 18.2 & BKM Ch.
18.5
BKM Ch. 18.6
BKM Ch. 9
Technical
BKM Ch. 9
Assignment
#3 Due
Assignment
#4 Due
BKM Ch. 15 &
16
5
Assignment
#5 Due